Paying Taxes is Public in Finland
The practice has created a number of publications and services that buy and publish the data, to find out - for instance - your colleague’s or friend’s incomes. One of them is Veropörssi, which publishes the taxable income of all citizens who made more than 10,000€ in taxable income, and even has a text message service for quicker answers.
Newspapers, both broadsheets like Aamulehti and tabloids like Ilta-Sanomat among other media publish similar figures in an easily accessible format to the point that the public broadcasting company YLE has a “tax machine” to look up the top income and capital gains tax earners in each municipality.
My parents' tax returns are public, so are my neighbours', and so would mine if I weren’t a student in 2007 not making more than 10,000€ in taxable income. Gifts and grants are not made public as gift tax is not under the publicly available returns. So students, athletes and artists on scholarships can at times are absent from these publications. Debates are ongoing as to whether they should be made public, and also require pensions contributions, and I rather support making all forms of pay -- from grants to stock-options -- equally part of the public tax information.
Top income tax earners are public figures in Finland as a result of heightened media scrutiny on top income tax earners. The CEOs of Nokia and other major corporations are all well-known not only for their public role in business, but also for their tax returns. The chairman of the board of Nokia and Shell, Jorma Ollilla had 9,8€ million in taxable annual pay in 2007, while the CEO of fashion group Marimekko Mika Ihamuotila had a pay of 5,1€ million. Both are well respected corporate leaders.
Other technology companies, and investment banks are among the other top income tax earners. Surprisingly many new start-ups of the past 10 years are among the top league of capital gains tax payers - raising some suspicions of older wealth having gone offshore. The highest capital gains tax payer was Göran Sundholm, the CEO and founder of Marioff, manufacturer of fire extinguishers, making 81 million in capital gains. He sold a part of the company's shares in 2001 to Nordic Capital, a private equity firm - domiciled in Jersey! The company was sold on from Nordic Capital in 2007. Despite recent tax information exchange treaties between the Nordic countries and the Channel Islands, knowing what information to ask from a Jersey-domiciled fund would be difficult for the tax authorities.
Not many people make a big fuss about how much your neighbour makes, and the cultural transparency goes far beyond taxes in the Nordic countries. Names of residents and companies are always posted outside buildings in post boxes and doorbells. Businesses often have large neon-lighted names attached to the buildings they occupy, partly due to dark winter nights, but also the idea of knowing who is based where – crucial also for tax purposes.
The history of the practice is also interesting, as pointed out by Osmo Soininvaara, a Green MP in Helsinki, in a recent debate. The practice comes from times when income tax was a discretionary issue to be negotiated mainly on the municipal level with local tax authorities. To avoid abuses in such a discretionary system, all tax payments were made public.
Countries still applying discretionary tax payments, such as the UK for its non-doms, or Switzerland for its incoming residents should take a lesson here in transparency in publishing at least all these tax deals so the public could have an informed debate. Same would apply for tax holiday and tax exemptions for companies.
Arguably the worst tax system is an arbitrary one, where direct dealings with tax authorities determine the applicable taxes. Today some consider that taxes in Finland are based on a strict tax code, and the old rationale for combating arbitrary taxation is no longer legitimate. However, arbitrary practices still exist as the tax planning industry is also present in Finland in coming up with ever more industrious schemes to avoid taxes. The way to keep the integrity of a tax system is to keep it public.
There are also critics to the practice, as it’s seen as an infringement of privacy, and others point out special cases such as income from crime tip-offs also appearing on annual income tax records placing whistleblowers at risk. A crime victim-protection scheme does exists, where your tax returns remain hidden where the court has ruled so – mostly applied in cases of personal harassment.
The system produces some distinctive features, such as the role of artists who complain that as finishing works of art take several years, annual returns give a distortionary picture of their incomes as some years are phenomenal, others nearly nil. However such windfall gains, and especially ones in the financial sector, are part of the current economic model and an informed debate on them is rather better than being left in the dark.
These returns also reveal some common tax planning strategies. If you happen to be a major owner of the company your work for, the company (or you yourself as its main shareholder) can decide to pay you a minimum wage of 15,500€, while making most income in capital gains taxed at 28%. In comparison, marginal income tax rates vary between 8.5% to 31.5% to which you need to apply a municipal tax, which in 2008 was on average 18.6%, bringing the top income bracket to about 50.1%.
The publicity of tax returns in Finland has its admirers and its critics, currently a complaint has been filed at the European Court of Justice, based on a Supreme Administrative Court case in Finland, where publications were sued for reselling tax information by text messages to clients, something that needs to be discussed under the freedom of speech debates if it intrudes the privacy of personal surroundings making chats in the café or restaurant rather more public. The effect however is very similar to looking the same information up the following day in a publication.
Also demands are made to for the tax authority to provide the information free of charge on thier website, as is the case in Norway, rather than reselling it to newspapers and third parties. This would be an improvement, as often transparency in the simplest form is the best manner.
Watch this space in October for the annual who is who in tax in Finland.
Matti Kohonen - the author is a Finnish citizen working as a consultant for the Tax Justice Network International Secretariat.